KKR Japan REIT Buying Nagoya Office Block for $64M

KKR’s Tokyo-listed commercial REIT has agreed to acquire a 14-storey office building in central Nagoya for JPY 9.7 billion ($64 million).

Japan Metropolitan Fund is picking up the building known as Glass City Sakae in Nagoya’s Sakae business district at a 9.4 percent discount to appraised value, according to a Wednesday filing by the trust’s manager.

The net operating income yield of 4.6 percent exceeds the 2008-vintage property’s indicated capitalisation rate by 90 basis points, said the manager, which is controlled by Manhattan-based private equity giant KKR. The office block’s leasable area of 9,915 square metres (106,724 square feet) is 83.5 percent occupied, but the rate has been rising and JMF expects it to reach 90 percent.

“As there is a certain degree of discrepancy between the current rents and the market rents for the property, we aim to further improve profitability by raising the rents when renewing contracts with tenants and replacing them,” the manager said.

Competitive Features

JMF is buying Glass City Sakae from an unrelated seller at a price equivalent to JPY 978,315 ($6,449) per square metre of leasable area.

Each floor’s 740 square metres can be divided into five sections to meet the needs of small-scale tenants, the manager said, adding that the property’s perks include transit convenience and specifications similar to those of newer buildings.

Glass City Sakae is a nine-minute walk from Sakae station on the Nagoya subway’s Higashiyama and Meijo Lines and Fushimi station on the Higashiyama Line. Ceiling heights of 2.7 metres (8.9 feet) and individual air conditioning give the asset a competitive advantage in Sakae, where many office buildings are over 30 years old, according to the manager.

JMF will finance the acquisition with cash on hand and JPY 10 billion in loans secured from Mizuho Bank, with the deal expected to close on 2 December.

Adding Assets

JMF’s latest buy comes as the $9.1 billion trust last week announced its purchase of a soon-to-be-completed hotel in Kamakura, south of Tokyo, from Hajime Construction for JPY 3.2 billion ($20.7 million).

The acquisition is being made at a more than 22 percent discount to the appraised value of the five-storey property. The transaction is said to be taking place at a 5.3 percent yield, based on net operating income for the hotel, which is scheduled to open in January.

In October, the trust added four properties in Greater Tokyo and Osaka for a total of JPY 57.1 billion ($390 million), led by the purchase of a large mall in Chiba prefecture. The 2007-vintage Unimo Chiharadai in Chiba’s Ichihara city, acquired for JPY 30 billion, has a total floor area of 70,429 square metres and a leasable area of 47,686 square metres, which is 98.2 percent occupied.